RI Loses $1.6M Annually To Out-Of-State Payday Lending Companies
Monday, June 03, 2013
Two bills currently under consideration at the State House would severely limit what payday lenders are able to do in Rhode Island.
Rhode Island is the only state in the northeast that allows payday loans in excess of 36%, said Margaux Morisseau of The Rhode Island Coalition for Payday Reform. In fact, Morisseau said, the state allows for APR interest on the storefront lending companies up to 260%. “Looking at the economic impact of payday lending in Rhode Island," Morisseau said, "[the state] loses $1.6 million that would go into local our economy every year due to the cyclical nature of payday lending debt that fuels businesses based mostly out of state and some out of the country.”
Morriseau cited national payday lending giant Advance America, which has a national base in South Carolina but is owned by a business conglomerate based outside the country. She went on to give the example of he state of North Carolina, which actually saw an economic improvement after its 2006 repeal of such loans. “The money that is used to pay back these loans is not going to support local businesses, buy groceries. Rhode Island is paying for businesses based in other states and other countries.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTGeneral Treasurer Gina Raimondo has publicly supported payday lending reform, saying to the Rhode Island House Finance Committee that the practice “hurts families and the economy.” Raimondo went on to say that the state is “reeling from the lack of regulation," explaining the dangerous cycle of the practice: A person takes out a loan using an ID and proof of income. The person leaves a dated check. If, after fourteen days, the person defaults, another loan is taken out to cover the first one and so on.
Rhode Island's payday lending reform legislation
Representatives Frank Ferri (D – District 22, Warwick) and Lisa Baldelli Hunt (D – District 49, Woonsocket) took center stage as sponsors of bills that would significantly block the business of payday lenders, referred officially to as deferred deposit providers. Baldelli-Hunt’s bill, H528, would reduce the amount a check cashing business can charge for deferred deposit transaction fees from 10% to 5% of the funds advanced. This would cut the annual interest on these types of loan from 260% to 130%. Ferri’s bill, H5019, goes even further by scratching the business of deferred deposit providers as they currently exist.
Representative Lisa Baldelli-Hunt introduced her proposal by explaining that, in years past, the interest rate of payday loans was as high as 392%. Since then, legislation has curbed it to its current 260%. But, even with the reduction in interest allowance, users of Rhode Island, payday-lending stores have increased from around 100,000 in 2009 to over 183,000 in 2011. This, she said, proves that these businesses are not suffering from a loss of traffic.
Representative Frank Ferri was less gracious to the payday lending business community using descriptors such as “loansharking” and “carpet bagging.” He went on to say that an initial loan of $350 could turn into a debt of $1260. “This,” he said “is gouging.”
Smiley: myths about payday lending reform
Brett Smiley, founder and President of CFO Consulting Group who, lobbying on behalf of the Rhode Island Coalition on Payday Lending Reform, outlined 3 "myths" that payday reform opponents are using as the General Assembly considers the 2 reform bills.
Smiley cited opposition reference to “strong data” showing that businesses would leave Rhode Island because of payday lending reform. "This is not true," he said. "Life goes on in other states so one to one replacement is unnecessary," he said. The second myth named by Smiley was that reform would lead to job loss. However, he pointed out, Oregon has a business model for payday lending with a 100% APR instead of 260% and those businesses are remaining profitable. Furthermore, the average annual salary of an employee of a payday lending storefront is only $27,000 annually. And most of the payday lending stores in the state are actually based outside of Rhode Island – many outside the country. The third and final myth, he said, was that polls indicate that most people actually want this product. Smiley countered with a Pew Research Center poll of more than 33,000 people that concluded that approximately 74% of those polled did not support the industry in its current form.
Opposition to reform: Advance America
At a recent hearing, representatives from the corporation Advance America defended the status quo. Advance America spokesman, Jamie Fulmer, said that with 19 locations in Rhode Island, the company does contribute to the state’s economy. He said that they offer a simple, straightforward product and that 260% was merely an “implied annualized fee.” He also said that the rates were better than the overdraft fees charged by banks.
This testimonial argument was contradicted by Morriseau and the Coalition who said, “Overdrafts are caused by small accidental purchases often $20, not large amounts such as $300 like payday loans. When someone defaults on a payday loan they will incur both insufficient fund fees from the payday lender and overdraft fees from their bank. Payday loans don’t ease the burden of overdraft fees, they increase them. This is yet another example of money that could be spent in Rhode Island’s local economy but goes to pay usurious, out of state corporations.”
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